Legal & General profits fall 20%

Published on Thursday 29 July 2004 14:13

LIFE insurance group Legal & General today reported a 20 per cent fall in interim profits but said the recent recovery in the UK savings market would persist.

The firm, which has some 4.5 million customers worldwide, said operating profit on an achieved basis fell to 292 million from 365m in the first half of 2003, largely due to putting 240m aside to cover the potential cost to its annuity business of people living longer. L&G had flagged up the move earlier this month.

A poll of nine analysts had produced a consensus operating profit forecast of 253m, with a wide range of 213m to 281m.

Under annuity policies, insurers agree to make annual payments to customers, drawn from their life savings, until their death.

Commenting on the UK market, chief executive David Prosser said: "I would expect the market to continue its recovery of five per cent-plus on 2003 and I see that continuing into 2005. I would expect to be ahead of that. We feel that the machine is on track."

World new business sales were up 13 per cent at 511m, largely bolstered by a strong second-quarter performance in the UK, where volumes were 27 per cent higher than a year earlier, indicating that confidence had returned to individual savers.

Unit-linked products allow customers to buy units in funds with different investment risks.

L&G said it had cut its so-called capital buffer, needed in the event of unforeseen problems, to 400m from 960m after switching the investments covering it into gilts from equities. Assets such as shares need a higher buffer because of the risk of stock market falls.

Life insurers report earnings on an achieved basis, which includes profit from new business written during the year as well as that earned from existing policies, reflecting money made on investments and assumptions about future returns.

L&G said it was recommending an interim dividend of 1.61 pence a share, up 2.5 per cent. Mr Prosser added: "Legal & General is one of the strongest companies in the sector and is well positioned to benefit from the opportunities the market offers."

Earlier this week, life insurance rival Prudential posted better-than-expected half-year profits. The UK’s second-biggest insurer reported a 55 per cent hike in operating profits to 563m, from 364m at the same stage last year. Analysts had been looking for profits to fall between 455m and 522m.